2023-10-29 08:49:03
Washington (awp/afp) – The Fed is walking on eggshells. And to try to break as little as possible, it could again maintain its rates at their current level, at the end of its meeting on Wednesday, despite inflation still being too high.
Because if you tighten your monetary policy too much, another danger lurks: recession.
“The Fed is in wait-and-see mode,” summarizes Krishna Guha, economist for Evercore, an investment consulting firm.
However, GDP growth more than doubled in the 3rd quarter, to 4.9% at an annualized rate. This should argue in favor of a further increase in rates, necessary to slow down economic activity, and thus bring inflation back on track.
But this “remarkably strong growth in the third quarter” is “compensated by the rise in yields” on Treasury bills, details Krishna Guha.
The Federal Reserve has indeed suggested that its rates could remain high for longer than expected, lowering the prices of Treasury bonds and increasing their yield.
“Many within the Fed believe that the rise in yields we have seen amounts to another rate hike,” said Diane Swonk, chief economist for KPMG.
The impact of Treasury bond yields is in fact much broader, she emphasizes, than that of Fed rates, since the latter condition the evolution of loans granted by banks, “which only represent about a third of credit in the United States.
Option
To slow down prices, the Fed has already raised its rates 11 times since March 2022, a pace not seen since the early 1980s. These are now in the range of 5.25 to 5.50%, at most. high since 2001.
Almost all market players expect this level to be maintained at the meeting on Tuesday and Wednesday, according to CME Group’s assessment.
Gregory Daco, chief economist for EY Parthenon, expects Fed officials to maintain “an option for further tightening” in their press release to be issued after the meeting on Wednesday.
For him, however, “the Fed’s tightening cycle is over”, and there will be no further increase.
“Officials will not rule out a further rise in rates,” says Michael Pearce, economist for Oxford Economics.
“But it is clear that most officials consider that this is conditional on a continued strengthening of employment growth and inflation, which seems unlikely to us,” he also qualifies.
Too early to declare victory
However, the inflation figures for September, published Friday, “are not yet good enough for the Fed to be able to claim victory”, note the economists at Pantheon Macroeconomics.
The PCE index, the gauge favored by the Fed, and which it wants to reduce to 2.0%, actually showed a stable price increase for the third month in a row, at 3.4% over one year and 0.4% over one month.
But so-called core inflation accelerated over one month, to 0.3% compared to 0.1%.
Another measure of inflation, the CPI index, on which pensions are indexed in particular, showed a stable price increase over one year in September, at 3.7%, but slowing down over one month, for the first time. times since May.
Despite higher inflation in the euro zone than in the United States, the European Central Bank (ECB) left its rates unchanged on Thursday, after ten increases in a row since July 2022.
Fed Chairman Jerome Powell recalled on October 19 that “inflation is still too high, and a few months of good figures are only the beginning.”
But, he warned, “the path may be strewn with pitfalls and take time.”
afp/rp
1698583525
#United #States #Fed #waitandsee #pause #sight #October #a.m